Edited version of private advice

Authorisation Number: 1052342958969

Date of advice: 12 December 2024

Ruling

Subject: Trust deed amendments and capital gains tax

Question 1

Will the proposed amendments to the trust deed cause any capital gains tax (CGT) event?

Answer 1

No.

As the trust deed will be amended through a valid exercise of the trustee's power, the amendments will not cause the existing trust to terminate and a new trust to arise, nor will the variation lead to any particular asset being subject to a separate charter of rights and obligations, no CGT events will occur, including CGT events E1 or E2.

This decision is consistent with Taxation Determination TD 2012/21 Income tax: does CGT event E1 or E2 in sections 104-55 or 104-60 of the Income Tax Assessment Act 1997 happen if the terms of a trust are changed pursuant to a valid exercise of a power contained within the trust's constituent document, or varied with the approval of a relevant court?

Taxation determinations are public rulings for the purposes of the Taxation Administration Act 1953. If you rely on the ruling and act in accordance with the ruling, you will be protected from having to pay any underpaid tax, penalty or interest in respect of the matters covered by this ruling if it turns out that it does not correctly state how the relevant provision applies to you.

Question 2

Will the proposed amendments to the trust deed result in any change to the cost base of the currently issued units?

Answer 2

No.

As the trust will not be resettled, upon exercise of the proposed amendments, there will be no changes to the cost base of the currently issued units.

This ruling applies for the following period:

Year ending XX June 20XX

The scheme commenced on:

XX July 20XX

Relevant facts and circumstances

Company A (Trustee), Company B and Company C (Unit Holders) executed a trust deed establishing the Trust.

The Trustee proposes to amend the Trust Deed in order for the Trust to meet the definition of a fixed unit trust in the relevant state legislation.

The trust deed provides:

Variation of Trust Deed

Power to vary

Subject to the relevant clauses and the Unitholders Approval pursuant to the relevant clause the Trustee may at any time by deed:

add to alter, vary, modify, delete or otherwise amend any provision of this Deed;

The Unit Holders will approve the variation pursuant to the relevant clause of the Trust Deed.

The trustee will amend the trust deed by inserting the following provision:

This provision applied in priority to all other provisions in this Deed and notwithstanding anything to the contrary:

1.1       all unit holders are presently entitled to income of the Trust, subject only to the payment of proper expenses by and of the Trustee relating to the administration of the Trust;

1.2       all unit holders are presently entitled to the capital of the Trust and may require the Trustee to wind up the Trust and distribute the Trust property or the net proceeds of the Trust property;

1.3       the entitlements referred to in clauses 1.1 and 1.2 cannot be removed, restricted or otherwise affected by the exercise of any discretion or by a failure to exercise any discretion, conferred on a person by this Deed;

1.4       the proportion of Trust capital to which a unit holder is entitled on a winding up or surrender of units is fixed and must be the same as the proportion of income of the Trust to which the unitholder is entitled;

1.5       only one class of units may be on issue or issued in the Trust; and

1.6       proposed clauses 1.4 and 1.5 cannot be amended.

The amendments to the trust deed do not affect the assets of the Trust, nor do they cause the Trust to vest or resettle.

No assets are being transferred and the Unit Holders will not change as a result of the variation.

The draft amendments will not affect the cost base of the already issued units of the Trust.

Relevant legislative provisions

Income Tax Assessment Act 1997 subdivision 104-E

Income Tax Assessment Act 1997 section 104-55

Income Tax Assessment Act 1997 section 104-60